Lecture 2- Costing Flashcards
What is the process to prepare “costings”?
1) The accumulation and classification of costs, and
2) The allocation of these costs to the cost object
What is a cost object?
Any activity for which a separate measurement of costs is desired
What is a cost unit?
Unit of a product or service for which costs can be ascertained
What is a cost centre?
An area or location for which costs can be allocated. This can be production cost centre or a service department
What is a production cost?
A production cost is a cost related to making a product- the purchase of raw materials to the completion of the finished product. These often include direct materials, labour hours and other expenses.
What are non-production costs?
Non-production costs are not related to the manufacture of the product directly but are costs that are associated with admin, selling and distribution
What are fixed costs?
Fixed costs are costs that remain constant for a specified time period and which are not affected by the volume of activity. They are parallel to horizontal axis. Unit fixed costs decline with increased production.
What are indirect costs?
Indirect costs are costs that cannot be identified specifically with a given cost object, also known as overheads
What are product costs?
Costs that are identified with goods purchased or produced for resale and which are attached to products and included in the inventory valuation of goods
What are variable costs?
Variable costs are costs that vary in direct proportion to the volume of activity.
What are semi-variable costs?
Semi-variable costs are costs that contain both a fixed and a variable component, also known as mixed costs.
What are semi-fixed costs?
Semi-fixed costs are costs that remain fixed within a specified activity levels for a given amount of time but which eventually increase or decrease by a constant amount at critical activity levels
What is an unavoidable cost?
An unavoidable cost is a cost that cannot be saved whether or not an alternative is adopted and therefore you ignore it in making decisions.
What are avoidable costs?
Avoidable costs are costs that may be saved by not adopting a given alternative and are relevant in decision making
What are sunk costs?
Sunk costs are costs that have been incurred by a decision in the past and that cannot be changed by any future decisions, therefore it is not relevant.
